Motherson sumi : Recent opportunity to buy

Plz chk the company website for consolidated results for FY15 rather than screener. Infact always do chk the company website only. The TTM eps is 9+ and if you adjust to bonus its 6+.

Regarding the valuation part of Motherson sumi I would like to add that it always traded at premium because it has very ROCE ( 35% - 40% ), so obviously one has to pay the premium of such companies ( eg HDFC BANK, GRUH FINANCE,EICHER MOTORS, PAGE INDS ) to name few.

Also motherson sumi has always consistently feature in the Motilal Oswal wealth creation study. ( It has given around >30% CAGR growth ).

Motherson Sumi can’t be clubbed with the likes of great companies for eg Gruh, HDFC, Bosch, Wabco. Nestle, P&G. Its no where near a great company. Its a good company though and featuring in Motilal Oswal does not account for anything otherwise its very easy to buy their MOST fund and do nothing.

Trust me any company whose business model is largely dependent upon a single product (exceptions where there is practically no competition or some kind of technology leadership / patent) or a large single client sometime or the other will face the brunt. The best money is made when you buy at moderate PE with an excellent growth outlook and there is complete perception change. I am pretty much sure people will make huge money by buying Page, Bosch, Eicher at current valuations. There is more downside risk then upside. When you buy a stock all one has to take care of is to know / restrict downside risk. The upside will take care of itself.

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They have a stated goal of ““3Cx15” (no Component, Customer or Country to represent more than 15% of turnover)” and from the recent management interview their VW exposure is not to be worried about. Their exposure to Maruti Suzuki is also not very significant. If you read some of the interviews/research reports/annual reports then you will find out that at one point 3/4th of revenue used to come from a single customer and from a single country. They have made great progress from there and the auto industry has almost always had something going on to worry about and Motherson has performed in spite of all these odds.

Also I think one should not make too much about VC Shegal’s tone and attitude. The man has built an empire, made money for shareholders, hired professional management and has great track record.

To me Motherson Sumi and VW fiasco looks like a case of getting over influenced by extra vivid evidence.

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The moneycontrol consolidated PE might be more accurate at 34:

The trailing EPS seems to have been adjusted for the bonus at 1:2.

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Swiss too imposed a limited ban on VW vehicles. Typically other EU countries too follow. This issue is a long drawn and there will not be any quick resolution on the impact and financial burden. VW will have to squeeze its vendors.

@NikhilJain , Yes Motherson , has evidence of change in trend ( FROM BULL TO BEAR ) both in daily and monthly charts . so we can see short covering rallies . as an opportunity exit or sell .

It becomes a long term buy below 200 which I guess will come sooner than expected.

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Actually, what I meant was the opposite (bear to sideways/bull)

3 sessions ago, MSS made a long white candle with volumes. I am under the belief that it indicates change in trend in the medium term.

The charts aren’t conclusive yet but 230 seems like a good support level.

230-239 is good support on weekly charts. It is consolidating at that level for last 10 days.

Let’s see how Nifty supports the same.

Indeed its good demand zone , i believe that MSS has changed from bull to bear and rallies are opportunity to exit or sell .

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Prof Ashwath Damodaran tries to value Volkswagen. This should give some good perspective for people looking at Motherson Sumi

Disclosure: Have been buying after the scandal broke out. Currently a little over 1% of portfolio.

I compared last five year margin with Amara Raja.

Motherson sumi:

9.30 5.49 5.83 7.88 7.49

Amara Raja:

14.62 14.36 13.84 16.19 16.66

Could someone help me in understanding why there is a huge difference ?

On what basis were you expecting it to be same :stuck_out_tongue: ?

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@Dhinakaran

Both the companies are in different segments.

Amara Raja is into batteries and Motherson sumi is in auto ancillaries business.

You can’t compare these two companies.

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@rajpanda @chiragjain1976 Thank you for replying,.
My concern is, Why motherson sumi’s margin is low? is it a low margin business or is it less efficient?

Hi @Dhinakaran

Low margin does not necessarily mean it is concern always.

You have to compare the net profit in relation to capital employed. If a business has low capital employed and huge sales and even with low margin if it is earning more than 20% return on capital then it is good business.
You can compare net margin with previous year results of same company or with company which operates in same business segment.
If you see Maruti its NPM is less than 10% however it is generating more than 35% on capital employed.

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Hi @Dhinakaran,

Actually it won’t be fair to judge the efficiency of 2 companies based on the margins alone.
Some kind of businesses are more likely to have better margins while other’s don’t and there are multiple factor’s influencing this. One of the factors is, if the business is customer facing (B2C) or business facing (B2B) But even in this factor there are all kinds of case like below…

  1. B2B business - low margin. Maybe because they don’t offer anything unique and their product/services are easily replaceable. So the basis of the business is their ability to conduct their operation efficiently and not add too much cost for the value they create in the value chain. Example Motherson Sumi ,Agri commodities company?

  2. B2B - high margins - Probably because they create something which is not easy to replace - ex - Shilpa Medicare, AIA ?

  3. B2C - low margin - Example: Road side restaurants ?

  4. Finally B2C - high margins - because they create something which user doesn’t want to replace with anything else ? Example : Amara Raja (is a mix of B2C & B2B), Eicher etc, Apple …

Among other things industry structure and competition also decides the margins to a large extent.
I humbly suggest, you read more about Michael porter’s work to understand these dynamics better.
Hope I was of help.

Regards
Raja

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Yes very well explained by Raj

motherson sumi is B2B business.

It has business in over 80 countries and is the leading suppliers as OEM to all major automobile companies of the world.

Though it’s profit margins are less but this company is generating ROCE of 30-40% consistently over last 10 years.

Currently it has been beaten down by the Volksvagen issue.

Disc : Invested

Great set of numbers from motherson sumi.

Net soars by 176%